HELOC for Down Payment on a Section 8 Property a good Idea?

[Michael Bishay]

Hello Fam! 

I got a HELOC on my primary residence for about 400k. I was thinking I can use those funds for the down payment and closing costs for turn Key properties in Ohio. Then renting them to Section 8 Tenants. I figure 25k per property can get me to about 16 SFH (Give or take).

Any opinion on this? 

[Jonathan Greene]

You are talking about this like it's a video game where you just can collect things for prizes and it all works out. If you have no experience investing or as a landlord, or with Section 8, why would you take a second loan on your home, barrel your equity in it, and invest it in an area you seemingly don't know? Section 8 can be successful and to be successful, multiple is better so you learn and perfect the system for the area, but it can be very hard from afar and very labor intensive on the landlord side.

[Kerlous Tadres]

Quote from @Michael Bishay:

Hello Fam! 

I got a HELOC on my primary residence for about 400k. I was thinking I can use those funds for the down payment and closing costs for turn Key properties in Ohio. Then renting them to Section 8 Tenants. I figure 25k per property can get me to about 16 SFH (Give or take).

Any opinion on this? 

 Hey Michael, 

I do think that you can achieve a lot with the 400K, I would recommend for you to build a team in place for whatever city you are investing in and go from there. I invest in here Columbus, Ohio. Let me know if you have any questions

[Michael Bishay]

Quote from @Jonathan Greene:

You are talking about this like it's a video game where you just can collect things for prizes and it all works out. If you have no experience investing or as a landlord, or with Section 8, why would you take a second loan on your home, barrel your equity in it, and invest it in an area you seemingly don't know? Section 8 can be successful and to be successful, multiple is better so you learn and perfect the system for the area, but it can be very hard from afar and very labor intensive on the landlord side.

I appreciate your response. I do own 2 section 8’s in SC, 3 Airbnb’s and 3 doors in Bergen county NJ.  Your from jersey it seems so your familiar with the area.  So I’m not looking at this as a video game.  In addition, I manage a 600MM book of business at one of the top 4 firms. 

So I’m not looking at this as a video game, just wanted to get people’s opinion.  I have a ton of money in my home which is just sitting there. Why not use it? 

I don’t know what I don’t know and wanted to see if anyone has done this before or has any insight. 

Thank you in advance. 

[Jonathan Greene]

Quote from @Michael Bishay:

Quote from @Jonathan Greene:

You are talking about this like it's a video game where you just can collect things for prizes and it all works out. If you have no experience investing or as a landlord, or with Section 8, why would you take a second loan on your home, barrel your equity in it, and invest it in an area you seemingly don't know? Section 8 can be successful and to be successful, multiple is better so you learn and perfect the system for the area, but it can be very hard from afar and very labor intensive on the landlord side.

I appreciate your response. I do own 2 section 8’s in SC, 3 Airbnb’s and 3 doors in Bergen county NJ.  Your from jersey it seems so your familiar with the area.  So I’m not looking at this as a video game.  In addition, I manage a 600MM book of business at one of the top 4 firms. 

So I’m not looking at this as a video game, just wanted to get people’s opinion.  I have a ton of money in my home which is just sitting there. Why not use it? 

I don’t know what I don’t know and wanted to see if anyone has done this before or has any insight. 

Thank you in advance. 

When you say, "I figure 25k per property can get me to about 16 SFH (Give or take), that is what I was talking about. Where are you finding 16 SFH houses for 25k or if you are saying 25k downpayment on each, now you are leveraged on 16 low-income houses in Ohio. It's good that you have experience with a couple in SC, but it would wiser to do more around those instead of opening another market on Section 8.

With your experience, your question should have had a bit more information. It sounds like you are ready to just toss the equity into something large, in many short parts, and that's a bad starting point in my opinion.

[Michael Bishay]

Quote from @Jonathan Greene:

Quote from @Michael Bishay:

Quote from @Jonathan Greene:

You are talking about this like it's a video game where you just can collect things for prizes and it all works out. If you have no experience investing or as a landlord, or with Section 8, why would you take a second loan on your home, barrel your equity in it, and invest it in an area you seemingly don't know? Section 8 can be successful and to be successful, multiple is better so you learn and perfect the system for the area, but it can be very hard from afar and very labor intensive on the landlord side.

I appreciate your response. I do own 2 section 8’s in SC, 3 Airbnb’s and 3 doors in Bergen county NJ.  Your from jersey it seems so your familiar with the area.  So I’m not looking at this as a video game.  In addition, I manage a 600MM book of business at one of the top 4 firms. 

So I’m not looking at this as a video game, just wanted to get people’s opinion.  I have a ton of money in my home which is just sitting there. Why not use it? 

I don’t know what I don’t know and wanted to see if anyone has done this before or has any insight. 

Thank you in advance. 

When you say, "I figure 25k per property can get me to about 16 SFH (Give or take), that is what I was talking about. Where are you finding 16 SFH houses for 25k or if you are saying 25k downpayment on each, now you are leveraged on 16 low-income houses in Ohio. It's good that you have experience with a couple in SC, but it would wiser to do more around those instead of opening another market on Section 8.

With your experience, your question should have had a bit more information. It sounds like you are ready to just toss the equity into something large, in many short parts, and that's a bad starting point in my

 So if the home is 75k, 15% down from a hard money Lender is about $11,250.  Add 5k for cosmetic work, and 3k for closing gets you to $19,250.  With a buffer of $5750. Round about. 

With 400k, I can do that 16 times. (Potentially) I’m not worried about being leveraged. I want to be leveraged.  

If I wind up in a pinch then I’ll dip into my personal cash reserves.  

Does that make sense? Or am I missing something. 

I was reaching out to this community, again to see if anyone has done it like this before and if so, what their experiance was.

[Remington Lyman]

Quote from @Michael Bishay:

Hello Fam! 

I got a HELOC on my primary residence for about 400k. I was thinking I can use those funds for the down payment and closing costs for turn Key properties in Ohio. Then renting them to Section 8 Tenants. I figure 25k per property can get me to about 16 SFH (Give or take).

Any opinion on this? 

 I think this is a good start to a plan but just take one step at a time. Maybe you mean this in the post and I am misinterpreting it. Start with one and see how it goes

[Samuel Diouf]

This could work out in the higher cash-flow markets here in Ohio, such as Dayton. 

It would be important to focus heavily on buying the right deals, as this strategy involves substantial leverage. 

[Bonnie Low]

I've looked all over Ohio and am finding true cash flowing properties scarce. Sure you can get relatively cheap properties in Toledo and Cleveland, but at today's interest rates they'll be difficult to cash flow despite what your analysis shows on paper. Older, cheaper properties in C & D class neighborhoods are notorious money pits. Maintenance, repairs and turnover eat up the slim cash flow and then some. Of course, if you can buy at a steep discount, get favorable interest rates and put a lot more down, you can make almost anything cash flow. I'm not negative on these areas. But using a HELOC is a risk because a) the liability is against your primary residence and b) current interest rates on HELOCs, which typically adjust after the initial term, are anywhere from 8-12%. You'd have to be assured your return is greater than that just to cover you HELOC payment. If I was going to use a HELOC for investing (which I've done several times), I'd buy a vacation rental or multi-family in a B class neighborhood.

[Regina Blake]

Hi, Ohio is a great place to invest in real estate. I always inform my clients to speak with your lender about this situation they would definitely lead you in the right direction when they know your real estate goals/plan.  Thanks!

[Dave Poeppelmeier]

My thought is do what you have to do brother... We started out by raiding my 401k, including the penalty, because we didn't have a lot of money available to us. We started one house at a time, and had to roll the dice a few times, but it turned up pretty good for the most part. 

Having that HELOC available to you is a fantastic tool, you just have to use it appropriately. Do you have W2 income to pay it back? Don't think that when you get a bunch of properties that they are going to pay it back for you right away. If you use a HELOC, I would think about a BRRRR-ish strategy (No perfect BRRRR exists right now unless you go full off-market door knocking/postcard campaign/etc) to where you can refinance and get some of that money back, so you don't have $25k chunks of money at a 9-10% interest rate floating out there indefinitely. But again, it's a great tool to have in your toolbelt in case something pops up that's fantastic and you have to move on. Cash is always King, and a HELOC is basically cash. Get into the property with cash and refinance on the back end with a commercial loan that doesn't require a 12-18 month seasoning period. Just some thoughts for you, best of luck!

[Kerry Baird]

I like the comments that @Dave Poeppelmeier made above.  I would have said a very similar thing. 

I like a HELOC for an emergency fund, as well. When we needed money it wasn't available due to low FICO scores from remodeling, DTI and so forth, so when we think of a possible financial pinch coming in advance, and can draw from a HELOC, that helps out a lot. I also raided my retirement fund and am pleased that I did. We are at 39 houses and counting. We will sell some of the lessor houses in the future and pay off some others.

[Michael Bishay]

Quote from @Kerry Baird:

I like the comments that @Dave Poeppelmeier made above.  I would have said a very similar thing. 

I like a HELOC for an emergency fund, as well. When we needed money it wasn't available due to low FICO scores from remodeling, DTI and so forth, so when we think of a possible financial pinch coming in advance, and can draw from a HELOC, that helps out a lot. I also raided my retirement fund and am pleased that I did. We are at 39 houses and counting. We will sell some of the lessor houses in the future and pay off some others.

 Thank you for your input.  What kind of investments do you have? Section 8? Multi Family? 

[Michael Bishay]

Quote from @Dave Poeppelmeier:

My thought is do what you have to do brother... We started out by raiding my 401k, including the penalty, because we didn't have a lot of money available to us. We started one house at a time, and had to roll the dice a few times, but it turned up pretty good for the most part. 

Having that HELOC available to you is a fantastic tool, you just have to use it appropriately. Do you have W2 income to pay it back? Don't think that when you get a bunch of properties that they are going to pay it back for you right away. If you use a HELOC, I would think about a BRRRR-ish strategy (No perfect BRRRR exists right now unless you go full off-market door knocking/postcard campaign/etc) to where you can refinance and get some of that money back, so you don't have $25k chunks of money at a 9-10% interest rate floating out there indefinitely. But again, it's a great tool to have in your toolbelt in case something pops up that's fantastic and you have to move on. Cash is always King, and a HELOC is basically cash. Get into the property with cash and refinance on the back end with a commercial loan that doesn't require a 12-18 month seasoning period. Just some thoughts for you, best of luck!

 Thank you for your insight.  I do have w2 income.  I live in Northern NJ and the prices here for anything are though the roof. 

[Travis Biziorek]

I don't think this is wise.

HELOC's are a great tool if you use them correctly. But using that money as a downpayment is not "correct".

For starters, it's almost guaranteed in this environment that the interest rate on your HELOC is higher than your CoC returns on the properties you'd buy.

That doesn't make sense.

Beyond that, how will you pay off the $400k HELOC balance? What's the plan there?

HELOC's make sense when you can do value add. That generally means buying cash, doing a rehab, and refinancing. Then using that cash to repay the HELOC in full or close.

That's exactly how I built my portfolio in Detroit. I wasn't able to fully repay my HELOC with refi proceeds but I was throwing the monthly cash flow at it as well.

[Jamie O'Connell]

I used 70k of a Heloc on my primary property to use a down payment on 1 duplex and 1 triplex. The Heloc cost me $600 a month and the duplex brings in $2,200 a month (minus $1,000 in carrying cost) and the triplex brings in $3,200 (minus $1,300 in carrying costs). 

So that 70k worth of Heloc brings me in a net of $2,500 a month.

I just told the primary residence and paid off my loan and Heloc and taking the additional $55,000 to get a few more properties.

I could have used it for more if I had BRRRR back then but still a great return. So in short, I say use it. But agree with others that if it's a new area I would start small and get 1 or 2 properties while you get a solid team set up.

[Michael Bishay]

Quote from @Jamie O'Connell:

I used 70k of a Heloc on my primary property to use a down payment on 1 duplex and 1 triplex. The Heloc cost me $600 a month and the duplex brings in $2,200 a month (minus $1,000 in carrying cost) and the triplex brings in $3,200 (minus $1,300 in carrying costs). 

So that 70k worth of Heloc brings me in a net of $2,500 a month.

I just told the primary residence and paid off my loan and Heloc and taking the additional $55,000 to get a few more properties.

I could have used it for more if I had BRRRR back then but still a great return. So in short, I say use it. But agree with others that if it's a new area I would start small and get 1 or 2 properties while you get a solid team set up.

Thank you for your advice. Super helpful. May I ask, what area did you buy these properties? 

[Michael Bishay]

Quote from @Travis Biziorek:

I don't think this is wise.

HELOC's are a great tool if you use them correctly. But using that money as a downpayment is not "correct".

For starters, it's almost guaranteed in this environment that the interest rate on your HELOC is higher than your CoC returns on the properties you'd buy.

That doesn't make sense.

Beyond that, how will you pay off the $400k HELOC balance? What's the plan there?

HELOC's make sense when you can do value add. That generally means buying cash, doing a rehab, and refinancing. Then using that cash to repay the HELOC in full or close.

That's exactly how I built my portfolio in Detroit. I wasn't able to fully repay my HELOC with refi proceeds but I was throwing the monthly cash flow at it as well.

Thank you so much for your insight. This why I love this community!  :) 

[Jamie O'Connell]

Upstate ny. They are all older houses so you need to have a good team since things break often. But the return is very nice. 

[Drew Sygit]

@Michael Bishay your biggest challenge will be getting your expected ROI out of Class C & D properties.

S8 vouchers aren't necessarily a guaranteed solution. 

S8 Challenges:
1) Voucher holders not having funds for application fees or security deposits
2) Tenants trashing properties, killing ROI
3) Tenants not paying their portion of rent or utilities
4) Tenants not cooperating with ongoing S8 requirements or inspections

Also, you stated in your initial post that you'd be buying turnkey rentals. In a response you stated you're budgeting $5k for cosmetic work?

You further implied using a hard money lender - why? DSR lenders have better rates.

Two other challenges:
1) Identifying neighborhoods to buy in and understanding what properties to buy
2) Finding a PMC that can deliver

If you can navigate all of the above then yes, your plan can work.

[Engelo Rumora]

Quote from @Michael Bishay:

Hello Fam! 

I got a HELOC on my primary residence for about 400k. I was thinking I can use those funds for the down payment and closing costs for turn Key properties in Ohio. Then renting them to Section 8 Tenants. I figure 25k per property can get me to about 16 SFH (Give or take).

Any opinion on this? 

Hi Michael,

I like your thoughts of building a large portfolio because it's very important in sub $100,000 markets like Ohio.

A large portfolio = A safe portfolio.

Personally, I've always been a big believer in buying with cash.

Less is more.

Once you gain experience and understanding the true income vs expenses of your portfolio.

Then look at using leverage for faster growth.

It takes many years to learn a market along with establishing a solid understanding of it's "in's and out's" from a people/team perspective.

As investors we should always reverse engineer and protect the bottom line first and foremost before looking toward expansion and growth.

My "cash only" mentality has served me well over the years in my businesses and real estate endeavors.

Especially when things turned South and they always eventually do.

Start slow, start small, buy with cash and build from there.

Just my opinion and wishing you much success

ps. Section 8 changed the rules of the game recently. We manage 400+ units and only a handful are Section 8. Not a fan of it and never will be. Why? Because I don't control the process.

[Michael Bishay]

Quote from @Engelo Rumora:

Quote from @Michael Bishay:

Hello Fam! 

I got a HELOC on my primary residence for about 400k. I was thinking I can use those funds for the down payment and closing costs for turn Key properties in Ohio. Then renting them to Section 8 Tenants. I figure 25k per property can get me to about 16 SFH (Give or take).

Any opinion on this? 

Hi Michael,

I like your thoughts of building a large portfolio because it's very important in sub $100,000 markets like Ohio.

A large portfolio = A safe portfolio.

Personally, I've always been a big believer in buying with cash.

Less is more.

Once you gain experience and understanding the true income vs expenses of your portfolio.

Then look at using leverage for faster growth.

It takes many years to learn a market along with establishing a solid understanding of it's "in's and out's" from a people/team perspective.

As investors we should always reverse engineer and protect the bottom line first and foremost before looking toward expansion and growth.

My "cash only" mentality has served me well over the years in my businesses and real estate endeavors.

Especially when things turned South and they always eventually do.

Start slow, start small, buy with cash and build from there.

Just my opinion and wishing you much success

ps. Section 8 changed the rules of the game recently. We manage 400+ units and only a handful are Section 8. Not a fan of it and never will be. Why? Because I don't control the process.

Thank you so much for your insight! I really appreciate it =)